Now that the words “bail out” are on most taxpayers’ lips, perhaps this is a good time for people who are financially struggling to learn a simplified method of budgeting. This process does not require fancy spreadsheets or a new computer program. One only needs some lined notebook paper, preferably in a spiral pad, and a sharp pencil with a big eraser.
List Debts
First, take the paper and make four columns. In the first column list every item that must be paid each month. For example, a list may look something like this, except that the column will reflect each individual person’s bills.
- Rent/Mortgage
- Utilities
- Clothing
- Gas
- VISA
- Savings
- Insurance
- Cell phone
In the next three columns, write the names of the next three months at the top of each column. Under each month, pencil in what you spend for that item. If necessary, “guestimate” how much is spent on that expense. Rent/Mortgage will probably be the same each month, so simply write that number in the three monthly columns. Utilities vary, but estimate what costs will be, taking into account variations in past bills due to weather changes. Do the same for each of the items listed. Include any department store bill or revolving accounts being paid. Put $100 a month in the clothing column, even if that much isn’t spent. This builds a bit of leeway into the budget.
Do Some Math
Now, add up each column and subtract that from your monthly income. What remains is what you will be living on. Divide that remainder amount by four (which represents approximately four weeks in a month). This is your weekly allowance. This must pay for food, lattes, dining out, etc. If you run out of money during the week, you’ll just have to wait until you issue yourself your next allowance. It’s recommended that you give yourself a cash allowance and not use debit cards. This makes one more aware of the money actually being spent.
Limit Payments
Using this plan, a person is allowed one, and only one, revolving payment. When that item is paid for, you may buy another item that requires payments if you so desire. Avoid having numerous payments each month. Many people nickel and dime themselves to death doing this. Even if each payment is small and seems innocuous, added together, they can quickly become overwhelming.
Savings Are Critical
No matter how small, it is critical that a predetermined amount of money be set aside each month. Can you save 10 percent of your income? Five percent? Any amount is preferable to nothing.
Freeze the Credit Cards
Only use a credit card for gas purchases. Everything else will be on a cash basis. If you have several credit cards, put them in a plastic bag, fill the bag with water and put it in the freezer. If a true emergency arises, the cards are still available, but having to take the time to defrost them, gives extra time to determine whether the need for the card is truly an emergency or not.
Pay off Bills
Prioritize bills and pay them off. A highly recommended technique is to pay extra on one bill until it’s paid in full, then take the money that was going towards that payment and put it on another bill. It won’t take long and many annoying monthly bills will be laid to rest. It doesn’t greatly matter in what order the bills to be paid are selected. Some people like to pay off small ones first so they get a sense of accomplishment. Others choose the bills with the highest interest rate. If you have payments that are 0% interest , by all means don’t prepay those, but be certain that the bill is paid in full before the free interest rate expires, and never be late with this payment or the generous offer will dematerialize instantly.
Eating Well, but Cheaply
Many people complain that they can’t buy groceries using a restricted budget. That’s very true if one is purchasing convenience items and prepackaged, boxed goods. A good cookbook will help alleviate this issue. There are many recipes that are nourishing, tasty and affordable. For example, legumes are highly nutritious and very affordable. Many vegetables, like carrots, onions and potatoes, are not only healthful but fit in anyone’s bankrupt budget. Should the economy overall worsen, knowing how to cook nourishing foods may save your health.
Get Control of Your Finances
Repeat this process monthly; forever if necessary. As bills get paid, watch your savings and monthly expendible income grow.
Getting control of one’s finances can be challenging but is definitely doable. It may require extreme determination and resolve for some. Being debt free, however, is well worth the effort.
The Millionaire Next Door, by Thomas J. Stanley and William D. Danko and Suze Orman's The 9 Steps to Financial Freedom are excellent resources for those wishing to get control of their budgets.
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